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I would be very skeptical of any startup trying to compete against Craigslist because, in addition to strong network effects, the latter has two difficult-to-re
by cs702 14y ago
I would be very skeptical of any startup trying to compete against Craigslist because, in addition to strong network effects, the latter has two difficult-to-replicate competitive advantages:
* Craigslist’s operating expenses are ridiculously low in relation to its huge size, allowing it to offer most services for free and still earn a profit. According to its public fact sheet, every month the site receives more than 50 million classified ads and serves more than 30 billion web pages.[1] Alexa ranks it as the ninth most-trafficked site in the US.[2] Yet somehow, the company manages to do this with just over 30 employees![1] On a per-year basis, that’s around 20 million classifieds per employee! Infrastructure costs are also very, very low in relation to traffic, as the site’s design, functionality, and interface are all ridiculously light and bare-bones.[3] No startup can match such ultra-low per-classified costs.
* While Craigstlist is technically a for-profit corporation, it operates as a non-profit organization,[1] so it is not seeking to maximize profits; instead, it is seeking only to be financially sustainable. Wealth-seeking entrepreneurs are at a huge disadvantage if they try to compete against a well-established entity that has both an ultra-low-cost advantage and no desire to acquire wealth over time.
In short, Craigslist possesses what Warren Buffett calls the “low-cost producer” advantage: it can offer a commodity service for less than anyone else.[4]
[1] http://www.craigslist.org/about/factsheet http://www.craigslist.org/about/factsheet
[2] http://www.alexa.com/topsites/countries/US http://www.alexa.com/topsites/countries/US
[3] According to this 2011 presentation, Craiglist, the 9th most-traffic site in the US, is powered by only ~500 servers located in two data centers: http://www.slideshare.net/jzawodn/lessons-learned-migrating-2-billion-documents-at-craigslist http://www.slideshare.net/jzawodn/lessons-learned-migrating-...
[4] For example, read Buffett's description of GEICO’s competitive advantage in his 2000 letter to shareholders: http://www.berkshirehathaway.com/2000ar/2000letter.html http://www.berkshirehathaway.com/2000ar/2000letter.html
- jeremymims 14y agoCan we put this to rest once and for all? Craigslist is a for-profit company. From the fact sheet you've apparently cited without reading: Q: Is craigslist a nonprofit? A: No, craigslist was incorporated as a for-profit in 1999.
- cs702 14y agojeremymims: technically you're right, but in practice Craigslist operates as a non-profit. From the same link: Q: Why does craigslist still use a ".org" domain? A: It symbolizes the relatively non-commercial nature, public service mission, and non-corporate culture of craigslist. I updated my comment to reflect this. Thank you for pointing it out!
- herdrick 14y agoThat 'relatively non-commercial' organization earned > $30 million for the founder so far. What proportion of wholeheartedly commercial firms have done that? You shouldn't take a company's PR at face value.
- cs702 14y agoherdrick: Source? And are those the company's profits, or what the founder, Craig Newmark, has taken out of the company's profits since its founding 17-18 years ago? Does that include his salary, or only his pro-rata share of distributions to all shareholders, or both? Let's assume for a moment that this is the total amount of money he's received from the company since inception. It's a relatively paltry amount of money for a company with that kind of reach. Compare the "$30 million" you say he has earned cumulatively over nearly two decades to the billions or hundreds of millions of dollars earned by the founders of most web companies that have achieved similar scale. Moreover, that figure is comparable to what CEOs of large non-profit organizations make per year. Compare $30 million over 17-18 years, or around $1.7 million per year, to the figures quoted in this article: http://www.bizjournals.com/dallas/blog/2011/09/slideshow-who-are-the-highest-paid.html http://www.bizjournals.com/dallas/blog/2011/09/slideshow-who... By all accounts, Craigslist behaves a lot more like a non-profit organization than as a for-profit corporation.
- eli 14y agoI have no idea if that number is accurate, but $30 million over a decade where the site has absolutely dominated its industry seems like a pittance.
- 14y ago
- joe_the_user 14y agoIndeed, Craigslist not only has a low-cost producer advantage, it serves a vast, vast market of people who only want to consume its commodified services at this nearly-zero cost. And who now expect such low-cost services to exist. The article said: If you are trying to compete with Craigslist in any of the above listed categories, you have to make life amazing for the seller. If that means driving a truck around “buying” couches and bookshelves and iphones for a year, consider it the cost of user acquisition. Lol. Yeah, that's what you'd have to do. Somehow stand between multi-billion-dollar river of buyers on craigslist and similar multi-billion-dollar river of sellers and somehow re-route the results. And that would cost unlimited amount of money once people figured out they could take couches from the dump and sell them to you!